How do I set up payroll for my first employee?
Your first hire means you need a few registrations, some employee paperwork, and a reliable way to calculate and remit payroll taxes. It sounds like a lot, but each step is straightforward once you know what’s required.
Start with registrations. If you don’t already have a federal Employer Identification Number (EIN), apply for one on the IRS website. It’s free and you’ll receive it immediately. You also need to register with the Arizona Department of Revenue for state income tax withholding and set up an unemployment insurance account through the Arizona Department of Economic Security (DES). New employers in Arizona pay a standard new employer UI rate that adjusts annually.
Before your employee starts working, collect a few forms. The federal W-4 tells you how much federal income tax to withhold from each paycheck. The Arizona A-4 is the state equivalent, where employees select their Arizona withholding percentage from a few flat-rate options. You’ll also need a completed I-9 to verify employment eligibility, which stays in your files rather than getting submitted anywhere. Arizona requires workers’ compensation insurance for any employer with at least one employee, so get that policy in place before the start date.
For actually running payroll, most small business owners use a payroll service rather than doing the math by hand. QuickBooks Online Payroll, Gusto, and ADP Run are popular options that calculate withholdings, generate pay stubs, file tax forms, and handle direct deposits. The cost is typically $40 to $80 per month plus a per-employee fee each pay run. For one employee, that’s absolutely worth it compared to the risk of making a calculation error yourself. A QuickBooks ProAdvisor in Chandler can help you pick the right setup and configure everything correctly before your first pay run.
Every pay period you’ll withhold federal income tax, Social Security, and Medicare from your employee’s paycheck. You also owe the employer portion of Social Security and Medicare at 7.65% of gross wages, plus federal and state unemployment taxes on top of that. These amounts get deposited on a schedule determined by your total tax liability. Most new employers with one employee deposit monthly.
Beyond the pay-period work, you’ll file Form 941 quarterly to report federal payroll taxes and submit Arizona withholding returns to the Department of Revenue. At year end you issue a W-2 to your employee and file copies with the Social Security Administration by January 31.
The most common mistakes with a first employee are missing tax deposit deadlines and forgetting to register with state agencies. The IRS charges penalties for late payroll tax deposits starting at 2% and increasing quickly from there. Getting everything set up correctly on day one is much easier than sorting out penalty notices later. If you’d like help getting QuickBooks Online configured with payroll enabled and connected to your bank accounts, it’s worth doing that before your first pay run rather than trying to fix things after the fact.
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